Q2 2025 Ensign Group Inc Earnings Call

Thank you. I would now like to turn the call over to Chad kich Chief investment officer. Please go ahead.

Speaker Change: Thank you, operator. And welcome everyone. We filed our earnings press release yesterday and it is available on the investors relations section of our website at enzyme group.net,

Speaker Change: A replay of this call will also be available on our website until 5:00 p.m. Pacific on Friday, August 29th, 2025. We want to remind anyone that may be listening to a replay of this call that all statements made are as of today. July 25th, 2025 and these statements have not been or will be updated subsequent to today's call. Also, any 4 looking statements made today are based on Management's, current expectations assumptions. And beliefs, about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those Express or implied on today's call, listeners should not place under Reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results, except as required, by Federal Security laws enzyme, and its independent, subseries do not undertake to publicly update or revise, any forward-looking statements where changes of arise as a result of new information, future events changing circumstances are for any other reason,

Speaker Change: In addition, the enzyme Group Inc is a holding company with no direct operating assets employees or revenues certain of our independent subsidiaries collectively referred to as the Service Center. Provide accounting, payroll Human Resources Information, Technology legal, risk management, and other services. To the other independent subsidiaries through contractual relationships.

Speaker Change: In addition, our captive Insurance subsidiary, which we refer to as the insurance captive provide, certain claims made coverage to our operating companies for General and professional liability, as well as for Workers Compensation Insurance liabilities.

Speaker Change: Enzyme also owns Standard, Bayer Healthcare Reed Inc, which is a captive real estate investment, trusts that invests in healthcare properties, and enters into Lisa. Grants with certain independent, subsidiaries of enzyme as well as third-party tenants that are unaffiliated with the enzyme group.

Speaker Change: The words enzyme company. We our and US refer to the enzyme Group Inc and its Consolidated subsidiaries.

Speaker Change: All of our independent subsidiaries the service center, standard Healthcare re and the insurance captive are operated by separate independent companies that have their own management employees and assets.

Speaker Change: References here into the Consolidated company and its assets and activities as well as the use of the words. We us our and similar terms are not meant to imply nor should it be construed as meaning that the enzyme group has direct operating assets employees or revenue or that any of the subsidiaries are operated by the enzyme group.

We also supplement our gaap reporting with non-gaap metrics, when viewed together with our Gap results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of Gap. Reports a gaap to non-gaap reconciliation is available in yesterday's, press release, and is available in our form 102. And with that I'll turn the call over to Barry for our CEO. Barry thanks Chad and thank you all for joining us today.

Barry: Our local teams have achieved another outstanding quarter. Raising the bar again, for what is possible? Even in a quarter where we historically have experienced more seasonality,

The clinical results, they achieved continue to be an important driver of our success.

Barry: As our teams work tirelessly to gain the trust of the communities, they serve and deliver consistent outcomes. Our operations continued to earn the reputation as the facility of choice for thousands of patients.

This trust is Apparent from the strong upward, Trends and occupancy and skilled mixture in the quarter, which we believe is only achievable through Dependable clinical results. Delivered by dedicated local leaders, caregivers and outstanding team members,

as we dissect, the numbers we set second quarter records for same store and transitioning occupancy which increased by 2% and 4.6% to 82.1% and 84% respectively over the prior year quarter we also saw skilled census increased for both our same store and transitioning operations by

Barry: 7.4% and 13.5% respectively, over the prior year quarter.

All these improvements are the result of many factors, but it could never have happened without the Relentless efforts by these local teams that we mentioned earlier, who Implement standard setting practices that lead to better outcomes.

We also continue to attract and develop caring and passionate Partners in into post-acute care who are determined to join us as we pursue our mission to dignify Post qare. In addition, we continue to see improvements in turnover as well as lower staffing agency, labor, even in the face of increased occupancy,

and seeing these metrics, consistently improve, is critical to maintaining our path of success and to achieve industry-leading results,

Barry: On the regulatory front. We were pleased that the skilled nursing population was carved out of Provider, tax reduction in the recently passed reconciliation bill which was a big win for our industry. We feel optimistic that state and federal governments will continue to recognize the importance of properly funding. The healthcare needs of the senior population.

Now more than ever, it is essential that we Elevate the voices of our patients and Frontline team members.

Barry: Their stories, reflect the heart of what we do.

Barry: And we remain unwavering in our commitment to advocate for re the resources and support needed to ensure they receive what they deserve.

After such a strong first half of the year, we are raising our annual 2025 earnings guidance to between $6.34 and $6.46 per diluted share up from the previously. Raised guidance of $6.22 to $6.38 per diluted share.

Barry: The new midpoint of this increased 2025 earnings guidance represents an increase of 16.4% Over Our 2024 results and it's 34% higher than our 2023 results.

Barry: We're also increasing our annual revenue, guidance to 4.99 billion to 5.02 billion up from 4.89 billion to 4.94 billion, to account. For our current quarter performance and Acquisitions. We anticipate closing through the third quarter.

This increase guidance is due to the continued execution of our growth model with Organic growth. Stemming from stronger, occupancy, and skilled mix, which is more than expected for the second quarter.

Barry: Other than during the pandemic, we typically experience a Slowdown in both occupancy and skilled mix during the second quarter. However,

Due to the continued momentum and quality outcomes. And the benefits from positive demographic Trends, we were able to maintain stronger than expected performance in both occupancy and skilled mix without the use of increased agency over time, which is also helping control our cost of services.

In addition many of our new acquisitions are performing well ahead of schedule, which highlights the continued improvement in our locally driven transition strategy, but also points towards solid underwriting and investment decisions.

Barry: We're also excited about our performance so far this year and are confident that our partners will continue to manage and innovate, while balancing the ignition of newly acquired operations.

Barry: We are eager to continue to drive, organic improvements and take advantage of the acquisition opportunities that we see on the horizon.

The combination of improvements in occupancy and skilled mix in our more mature operations and the long-term upside in our newly acquired operations shows the enormous organic growth potential in our existing portfolio. Next the last chat to add some additional insights into our recent growth, Chad

Thank you, Barry. We continue our study pace and growth by adding 8, new operations, including 3, real estate assets during the quarter and cents.

These include 4 in California, 3 in Idaho and 1 in Washington. In total, we added 710, new skilled, nursing beds and 68 Senior Living units across these 3 States.

Barry: This growth brings a number of operations acquired during a 2024 and cents to 52.

We are always happy to expand our presence in some of our most mature markets. And each of these new acquisitions represents an opportunity to further deepen, our commitment, to the healthcare communities, and some of our key States,

Barry: Our growth is quarter illustrates that. We continue to prioritize adding vests in our established geographies which allows our clusters to provide a comprehensive solution to the healthcare needs in those markets.

Barry: We also point out that the distribution of our growth over the last several quarters spans across many states and markets leaving us with significant bandwidth to grow in almost all of our markets.

Barry: While we look to grow in some of our new States, we still see significant opportunity to continue to add meaningful density in the markets we know best

Barry: Our local leaders continue to recruit future CEOs for enzy Affiliated operations. And we have a deep bench of CEOs and training that are eagerly preparing for their opportunity to lead.

Barry: During the quarter, we reached an all-time high for our aeetes and our pipeline.

Barry: And a healthy and sustainable way.

Barry: As we look at the current pipeline, we see opportunities, that include everything from small to mid-size owner, operator portfolios. Landlords, looking to replace current tenants nonprofits, looking to digest of their post-acute assets and a steady flow of our traditional onesie. Twosies

Barry: We anticipate the current rate of Acquisitions to continue this year and are expecting several to close our transition over the next few weeks and months.

Give them the growth on the near-term near and long-term Horizon.

Barry: We wanted to provide an update on some of the larger portfolios we've required recently.

In the past enzyme is sometimes been painted with a brush that would suggest that larger deals are not consistent with our model.

Barry: While most of our growth has been and will continue to be driven by the aggregation of lots of small deals. Our approach to transitioning each operation as a complex, Health businesses, they are also works on a larger scale.

Barry: This is particularly true when a larger deal spends. Several markets in geographies,

Barry: For example, in 2023, we transition the portfolio of 17 operations in California under a Master Lease with Sabra to be clear transitioning. A large number of operations on the same day especially if attempted in 1 Big Bite, like what happened in the traditional centralized company is definitely a huge undertaking,

Barry: However by applying lessons we had learned in years past particularly from a large deal. We did in Texas, our local leaders in California approached this deal as if it were 6 or 7 small deals.

As our local market leaders in California, prepared to transition these operations. They collectively took responsibility for 2 or 3 things holding the new operation into an existing cluster of enzyme operated facilities.

Barry: In doing so each of the 17 operations received the same amount of time, attention and resources. That a single acquisition would have received this allowed, the new operations in their teams, to immediately have the benefits of their cluster partners for nearly all aspects of the transition including training, on new clinical systems, and enzyme compliance standards support, and learning enzymes unique, cultural expectations, and accessing the expertise of their new Service Center Partners.

Barry: Rather than viewing the transaction, as a merger of 1 company into a larger company. Our teams approached it the same way as when we acquire a single asset from a small business owner or family.

Barry: As we look to that portfolio now which comprises the majority of our transitioning bucket, it's clear to see the positive clinical and financial contribution that this larger portfolio is making to the organization.

Barry: Of the 17th 12th have achieved 4 or 5 star rating from CMS occupancy is over 92%, skilled. Next days are 47%, and all are making substantial contributions to our overall ebit.

Barry: More recently. We completed a few larger portfolios, some of which span multiple States. While each deal is unique, we are pleased with the progress we've achieved so far in these newly required operations in the near future. We expect to announce the addition of a similar portfolio.

And we expect that over the long term, we will continue to be presented with large and mid-size portfolios.

Barry: While we are continuously perfecting and improving.

Barry: Performance of our Acquisitions, in the portfolio setting. We are confident that our locally LED approach is scalable in both new and existing geographies.

Barry: All that said we must and will remain committed to staying disciplined and true to the principles that have contributed to our consistent success, including insurance. That we pay prices that will allow the operations to have enough of the necessary resources to invest in the building and the clinical systems in order to achieve the highest possible clinical outcomes

Barry: Lastly we are also pleased with the continued growth of standard bear which added 5 new assets during the quarter and cents and now is comprised of a 140 owned properties.

Barry: Of these assets 106 are least to an enzyme Affiliated, operator. And 35 are at least a third party operators.

Barry: We were excited to add to our growing list of relationships with unaffiliated operators, which further diversifies our tenant base and helps our organization as a whole as we continue to advance our mission by working closely with like-minded operators that want to make a difference in this industry.

Going forward, standard variable will continue to work together with our existing partners and new relationships. We are developing in order to acquire portfolios comprised of operations, that enzyme would operate and Facilities. The third parties are interested in operating under a lease

Barry: For the quarter standard bear, reporter 18.4 million in FBO. And as of the end of the quarter, had an Eva Dar to rent coverage ratio of 2.5 times.

With that, I'll turn the call to Spencer our coo to add more color, and operations, Spencer.

Thanks Chad and hello everyone.

Barry: As always, we'd like to share a few examples of how operations in various stages of their maturity are contributing to our outstanding results.

Barry: It's the aggregation of achievements, like these, the comprised enzyme story. And we believe that these examples are the best way to explain how we produce consistent results over time.

Barry: The first operation, I'll highlight exemplifies what we hope to see in operations as a transfer from our transitioning bucket into our same store bucket.

Sedona Trace health and wellness is a 119 bed Skilled Nursing Facility. Located in Austin, Texas.

Tiana Roland: It is led by Rachel Hurley CEO and Tiana, Roland RN and C.

Tiana Roland: Sedona was acquired as part of a multi-facility deal back in Q3 of 2021.

Tiana Roland: Despite being constructed in 2017 and having a beautiful physical plant. The operation was consistently losing money and struggled with a poor clinical reputation.

Tiana Roland: Compounding matters. The facility was in a staffing crisis with a large percentage of nursing labor coming from registry.

Despite the challenges, the local team went to work. They focused on building a culture of high expectations and celebration which started with hiring the right interdisciplinary leaders who in turn focused on getting and training, high-caliber Frontline staff.

Tiana Roland: As a result, the team was able to completely eliminate registry labor and they have stayed fully staffed since 2023.

As we consistently see with most transition and operations, this formula methodically improved clinical results.

CMS overall, star ratings have jumped from 2 Star to 4 star and the facility currently has a 5-star rating for quality measures.

Tiana Roland: Sedona is now an attractive Continuum partner for hospitals and it is earned for preferred provider status with Austin's, major hospital system as well as Managed Care Networks.

Tiana Roland: The result has been steady growth and overall occupancy, which is up 6.8%.

And skilled managed and Medicare days which have increased 34.3% over prior year quarter.

For the same period revenues grew by 21%. While costs of services have remained stable as a result EV increased by an impressive 130% in Q2 over the prior year quarter.

Tiana Roland: We're proud of the transformation that has occurred at Sedona Trace. But as their team would be quick to point out, there is still so much more work to be done.

Tiana Roland: It will be exciting to see the growth continue for years to come as a facility continues to contribute as part of our same store operations bucket.

For the second facility example, I'd like to highlight an exciting Niche where we have been able to apply our post-acute expertise to help a local acute Hospital Elevate, the performance of their skilled nursing operations.

on a larger scale, we see a trend of hospitals, choosing to focus on their core acute services, and we expect to have more and more opportunities to grow in this unique and important part of the continuum

Tiana Roland: Valley of the Moon post-acute is a 27 bed. Hospital-based Skilled Nursing Facility located in Sonoma, California.

It became an Insignia filled yet in 2019 when our Northern California company contracted with Sonoma Valley Hospital to take management and Financial Risk. That a skilled nursing facility that they operated as part of their acute campus.

Tiana Roland: Prior to this Arrangement. This county-owned operation was underperforming clinically and was losing significant amounts of money.

Tiana Roland: The hospital leadership was faced with either a closing the facility or looking for help.

Tiana Roland: The hospital.

Was under significant pressure to find a solution as the community, did not want to lose the Smith services in their Hospital.

After many months of interviews and the public hearing, the hospital and County leadership selected our Northern California team to manage the sniff for them.

Under this Arrangement, our team maintains a close affiliation with the hospital management and board, including sharing certain services, like non-clinical services, such as laundry and housekeeping.

Tiana Roland: The partnership has been an enormous success.

Dolly of the Moon, CEO Ryan goldbark.

Tiana Roland: Co Christina Farrar and their interdisciplinary. Team have established postacute systems and elevated clinical outcomes. While simultaneously bringing Financial solvency to the operation

Speaker Change: Of the Moon team has embraced flexibility teamwork, and an attitude of care without silos and the results have been remarkable.

Tiana Roland: Valley of the Moon uses zero. Nursing Registry.

Has consistently low turnover and maintains 1 of the lowest overtime wage percentages in all of California.

Tiana Roland: They also produce incredible Health Care outcomes, including 1 of the lowest return to acute rates in the state and a CMS 5-star rating for quality measures.

Tiana Roland: The partnership is been beneficial for everyone.

Tiana Roland: The Soma Community is benefiting from greater Healthcare access. For example, an acquisition, the Sniff was serving, an average daily census of just 10 residents. Whereas now census consistently runs over 95% or 25 plus patients

Tiana Roland: The hospital is benefiting from improved bed management and length of stay as they can. Now confidently, discharge appropriate patients to a step down level of care, more easily.

Payers benefit because more of their members can receive care in the most appropriate setting and cost-effective Care setting.

And residents, including some with challenging and complex medical cases can receive skilled nursing level care without having to transfer off the hospital campus while remaining under the care of the same physician providers.

Tiana Roland: We excited about the impact Valley of the Moon Post Acute is having and we look forward to continuing to find ways to help acute Hospital Partners throughout our footprint, meet their communities. Full Continuum Healthcare needs.

With that, I'll turn the time over to Suzanne to provide more detail on the company's financial performance and our guidance. And then we'll open up for questions then.

Thank you, Spencer and good morning. Everyone detailed financial statements for the quarter are contained. In our 10q and press release filed yesterday. Some additional highlights for the quarter include the following gaps. Diluted earnings per share with a $1.44 an increase of 18%, adjusted diluted earnings per share with a $1.59 and increase of 20.5%.

Tiana Roland: Consolidated, gaap revenue, and adjusted revenue for both 1.2 billion and increase of 18.5%.

Tiana Roland: Gaap, net income was 84.4 million and increase of 18.9% and adjusted. Net income was 93.3 million and increase of 22.1%.

Other key metrics as of June 30th 2025 include cash and cash equivalents of 364 million and cash flow from operations at 228 million.

Tiana Roland: During the first half of 2025, we spent more than 210 million to execute on our strategic growth plan. Most of which have been in the works for months. We made this investment from a position of strength as shown by our lease adjusted, net debt, to even our ratio of 1.97 times which is after taking these investments into consideration.

Our continued ability to maintain low leverage even during periods of significant growth is particularly noteworthy and demonstrates our commitment to discipline growth.

As well as our belief that we can continue to achieve sustainable growth in the long run.

Tiana Roland: In addition we have approximately 593 million of a Bill's capacity on our line of credit. Which when combined with our cash on the balance sheet, gives us over a billion dollars in dry powder for future Investments. We own a 1466 assets of which 140 are held by dinner, bear and 122 are owned, completely debt-free and have gained significant value over time adding even more liquidity to help with future growth.

Tiana Roland: Companies, pay the quarterly cash dividend of 6 and 1/4 cents per share. We have a long history of paying dividends of an increased, the annual dividend for 22 consecutive years. In addition, we currently have a stock purchase repurchase program in place.

Tiana Roland: As very mentioned, we are increasing our annual 2025 earnings guidance to between $6.34 to $6.46 per deleted. Share in our annual revenue, guidance between 4.99 billion and 5.02 billion. We have evaluated multiple scenarios and based upon the strengthen our performance and positive momentum, we have seen in our occupancy and scope mix as well as our continued progress on labor, agency management and other operational initiatives, we have confidence that we can achieve these results.

Tiana Roland: Our 2025 guidance is based on deleted weighted average common stock outstanding of approximately 59 million, a tax rate of 25%.

Our Medicare and Medicaid reimbursement rates net of Provider checks with the primary exclusion coming from stock price compensation.

Tiana Roland: Additionally, other factors that can impact our quarterly performance include variations and reimbursement systems to raise and changes in state budgets, seasonality and occupancy and scale. Mix the influence of the general economy on census and Staffing. The short-term impact of our acquisition activities, variations and insurance across and other factors. And with that, I'll turn it back over to vary very very

Speaker Change: Thank you, Suzanne as uh, we wrap up. We are as a positive as ever about this industry that we collectively love and are committed to, it's hard. Not to be excited about our Rockets be Trends or labor Trends and our growth opportunities.

Speaker Change: But I can't emphasize enough. How incredibly honored and grateful. We all are to work alongside our operational. Leaders field resources clinical partners and Service Center teams

Speaker Change: They are Behind These record setting results, and it's their commitment that is blessed the lives of so many, including our own. We're as excited about our future as ever because of them. And with that, um, we'll turn it now over to the Q&A portion of our call Kate, will you please provide instructions for the Q&A?

Speaker Change: At this time, I would like to remind everyone in order to ask a question. Please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Speaker Change: Your first question comes from the line of two with McQuarrie Capital, your line is open.

Speaker Change: Hey, good morning.

Um, Chad I think you highlighted the success of the North American portfolio integration. Now we collect that deal with more opportunistic transactions. So, based on the prepared comment, I get a sense that there's a strategy shift as you are more open to those larger multi-state, you know, portfolio deals. I'm curious, if you could highlight, any changes you made in your system Personnel, operating model or lessons, learned that give you more confidence in consistently executing those larger deals and then what is the pipeline like for these larger transactions and when you know whether anti is more of a competitive Advantage giving your skill and balance sheet, you know conditions, thanks.

Speaker Change: Yeah, thanks for the questions. How so I I wouldn't say there's necessarily been a strategy shift at all. I just I think it's more. We're just trying to point out that we we have done some some of these um you know, more portfolio, uh type deals, including the 1 in Tennessee that we closed recently. And then we did, we did 1 in uh, in the northwest

You know, with Providence Hospital Systems recently. Um, so yeah, I I think we we definitely see a pipeline for for deals like that, you know. And like I said, in my prepared remarks, you know, large midsize and smaller portfolios are, they're all out there and I I think the the, you know, in terms of Lessons Learned and and you know something that we we've just experienced and and that I highlighted again today was, you know, for us we we looked at a a portfolio and and we we try to see geographically how it fits into our existing structure.

Speaker Change: And when we take a larger deal and split it up into a bunch of smaller pieces, um, and and do that locally, right? So we're we're talking about taking, uh, like I said in that, that example, those 17 buildings were spread across 6 or 7 of our markets. So it was really only 2 2 to 3 Acquisitions per uh, per Market or cluster. Um, that's a lot more digestible than trying to, to just kind of, you know, assume something and and do more of it like a merger style acquisition. So I think that's probably the, and we've we've done both and and certainly learned in in that Texas example back in 2000

15. That just trying to, to take a a big organization and just fold it in all at once, um, was not successful. And that, it took us a long time to kind of, you know, uh, essentially transition that deal twice to, to get to. And now it's obviously, uh, doing great but but, uh, that that was probably the, the biggest lesson that we wanted to highlight today, is that, um, you know, we we have experienced now we've done several of these portfolio deals and and they're, they're, you know, going very well. Um, and the key for us is to do it. The way we've always done it and, you know, each each of these buildings are, as you know, highly complex businesses, the demand a lot of time and attention, um, you know, starting on the transition date. And and that's the part that we we have to stay true to and disciplined about, um, regardless of how big the deal is. And to the extent, we can do that, you know, if if it crosses several markets, several clusters several States, um then then we feel like that is a

Speaker Change: than 1 that we can we can handle

Speaker Change: Great and to follow up on that topic, as you take on these larger deals, then maybe assets that will fit a third party. Operator better. I know that you you added another third-party, operator, this quarter. I just curious. How long do you think you can ramp up the exposure there you know, given what you consider qualified, operator, who you are targeting markets and also you know, if you could talk about the rent coverage, you are underwriting these assets at, you know, that would be much appreciated. Thank you.

Speaker Change: Yeah, another great question. So, yeah, the, the best example is this portfolio, we close on. Um, you know, uh, in in the Northwest it was 8 buildings and we we took 6 of them and we least 2 to a third party. Um, that's a perfect example of 1, where, you know, was and, and that was a real estate, you know, driven deal of course. But that's a perfect example of the types of of Acquisitions that we, we feel like standard bear helps us do and complete. Um, and and so, yeah, I think, you know, the, the key there is, um, making sure that the price that we pay is, is correct. And that, you know, we're not asking a third party tenant to take on a lease payment, that we ourselves wouldn't take on, right? So, so when you're talking about coverages, you know, we're always trying to Target very healthy coverages. Um, and, and so, you know, and and obviously, it, it will vary by market. But but, you know, I think,

For, you know, our goal is to be at a 15, um, or close to it. Um, and even and maybe it's not a 15 on the first month, but we, we could see a clear path to to getting there in a short period of time. Um, and, and, you know, the, the, the, the key though is finding sellers that are willing to, you know, um, do deals at the, at the right prices so that you can have some some coverage, um, after, after the fact. And, and that's, that's where, you know, again, when we talk about our discipline, um, we're we're really hyper focused on that. Um, and, and in terms of, you know, relationships with third-party, tenants. I mean, we're, we're, we're receiving more and more interest each time we kind of do 1 of these and announce it. We're getting more more folks that are reaching out, to kind of understand what it is that we're doing and how we're doing it and how we might work together. Um, and so, yeah, as bigger portfolios, come along. Um, this certainly this pathway certainly gives us uh, another another way to do it. And, and

And break it down into smaller bite-sized pieces.

Speaker Change: Awesome. Thank you for the color.

Your next question comes from the line of Ben Hendricks with RBC Capital markets. Your line is open.

Hi. This is Michael Marion for Ben. Thanks for taking my questions. Uh, the skilled nursing industry appears to have dodged, uh, direct impacts of the 1, big, beautiful Bill. Uh, but there still seems to be some potential for, uh, potentially some indirect impacts related to smaller Medicaid budgets. So, uh, we'd love to hear your thoughts on the obb generally and how are you sizing any indirect risks as a result of it?

Yeah, so good. Good question is thanks for um thanks for asking. And I I think it's important to point out that

Speaker Change: um,

Speaker Change: legislators were were very overt about making sure that they

Speaker Change: Uh, carved skilled nursing out of any large direct impacts, uh, to to Medicaid. And instead focused their efforts around reform with Workforce requirements, eligibility requirements and large directed payments, and, and other types of payments that weren't necessarily in line with, with, you know, standard practice, uh, for for, for the, for the program.

Speaker Change: Uh, that we're giving large benefits where they ought not to be. And and having the carve out,

Speaker Change: um, on the provider tax piece, I think was a clear indication from

Speaker Change: Uh, legislators that that they wanted to protect funding for seniors. And I think is a is a good bellweather for States. Now as yes while they do will have uh, in a in a few years. Uh,

Speaker Change: Um, maybe some more limited.

Speaker Change: uh, more limited budget tool to pull from

Speaker Change: um, I I think it, it sets a standard for how States should act and and the good news for us is that we have really good working relationships in every state that we operate in with our state legislators and Governor's offices and

Speaker Change: now, have time as there's again, a couple of years before, uh,

Speaker Change: To get implemented for us to work with them, and make sure that, uh, that we put ourselves in a position to remind them of, of how important funding for seniors is in in the skilled nursing setting.

Speaker Change: Um, I I I I suspect that, you know, with more finite budgets that, uh, that there will be some some movement in terms of how they shift Dollars around. But it is, uh, there there is not a state we operate in where legislators have the sentiment that they feel like

Skilled nursing is overfunded in every state. We operate in that they there's always a push to. How do we find more money to get you better funded, not the opposite? So

Speaker Change: you know, if we remember back to why Medicaid was created, it was created to to help the elderly the disabled and Indigent children and

Speaker Change: and I think,

um, I think

Speaker Change: we, we, we, we will be able to now have conversations around, uh, how how to make sure that funding is directed to those, those recipients best. And, um, and I think skilled nursing, senior funding will always be a priority for most of the states we operate in and we feel confident that we'll have

Speaker Change: The data and the ability to have those discussions at a state level, um, over the next couple of years.

um I don't we don't anticipate that there will be any other reconciliation bills and certainly no more um uh discussion at least in in this

Um, during this, you know, presidential term around, uh, big changes to Medicaid. So I I feel like, you know, we feel like the worst is is behind us and now we can have productive conversations in a state level, uh, to make sure that we're, we're in good shape for the long term, which by the way, is, is nothing new. Uh, we, we have always, um, had had this, uh,

You know, dynamic at a state level where we're we're advocating for proper funding for skilled nursing and and uh, this doesn't really change that much.

Speaker Change: Okay. Uh, that's helpful color, uh, just shifting to m&a, we've gotten some questions from investors recently on valuation of Acquisitions over the past few years. Uh, it's hard to parse out, uh, just because you're doing more and more, uh, real estate transactions and uh, geography, geography also, uh, plays a big role in this but, uh, to the extent you can normalize uh, for this how are valuations trending uh, generally and you continue to see attractive opportunities and valuations in your current markets.

Thank you.

Yeah, thanks for that question. I, I think we probably see valuations, um, you know, probably moderately increasing over time. Um, certainly postco, you know, with, uh, the rate environment being a little stronger and, and some of those things I think have have gradually pushed pricing, um, up a little bit. But, you know, I think the thing I just, you know, and and obviously, when we're leasing buildings, um, it's a much different um, evaluation than if we're buying a real estate and and I know that can make it tricky to, to look from the outside to see how we're viewing it. I, I think probably the, the, the key to, to how we evaluate deals is, and, you know, not to always talk about this, but it's locally driven, and, and our local teams and at, at, in the geography, in which we're, um, uh, looking to grow. They're the ones that are helping us, you know, just decide kind of what the appropriate price to pay would be whether it's a rent.

Or a purchase. And it it, the fundamentals of that decision are, you know? We we basically break down

Speaker Change: You know the the target opportunity and and you know, kind of leave it leave an opening around what the what their Dar is going to be. And obviously, rent is a function of the price that we pay. Um and so you know our operators are are very focused on what the DAR is going to be. Um and and we sort of back into what what price we feel like.

Speaker Change: is appropriate based on what an appropriate Dar would be for that market and and that sort of our, our driving factor into how how we decide as to whether to do a deal or not and what we're willing to pay

We're, we're not. And, and certainly we're, we're, we're aware of the market trends, and, and following those things closely, but but if pricing gets out of whack and people in the market are paying prices, we don't think you're sustainable. Then we just pass on those opportunities and that's where we stay disciplined. Um, but when, when the pricing is right and we, we feel like we can pay a fair price that will leave us with the Dar. That's that's, uh, sustainable over time that's when we move forward. And and, and you know, close those deals. So, um, you know, the virus been really positive, I think we're, you know, obviously our growth, uh, track record over the last couple years shows that there's a, you know, a lot of, um, doable transactions out there. And we we still feel like the pipeline looks really strong and healthy. And, um, but what we don't set growth goals, we don't start out the year saying, we're going to do X number of deals. And, and, um, and, and so if if pricing gets out of whack, like I said, we we'll slow down. Um, and and if if pricing is really good, that's

Speaker Change: When you'll see us, uh, be active, so hopefully that's helpful.

Speaker Change: Uh, yeah, yeah. It is uh, thank you.

Speaker Change: Your next question comes from the line of Raj Kumar with Stevens Inc, your line is open.

Raj Kumar: Hey, good morning. Um, first question, just kind of thinking about um you know, Medicaid reimbursement and you know, more particularly on the California Workforce and quality incentive program, which is set to end uh, by 2025, uh, can you can you speak to the current contribution, you know, and sign receives from this program and then maybe what are some of the conversations you or the industry are kind of having at the state level in order to kind of maintain adequate funding in California?

We're actually expecting that funding to go through 26 just to test how the state year works and how our Revenue recognition works. And so it'll actually be there for 2025 and 2026 um based upon the recent change. Um, and it's something that would when we look at and this is not just unique to California, but this is for every Statewide program and we work with the state and how they're looking at their overall state budget. And a lot of these quality programs come our originally came from the base rate and we're really to incentivize providers to provide better quality care. And so as you work with them and we work with them about how they're that program will change over time. Our goal would be for to help them. Remind them and see that the original amount came from the base for

Raj Kumar: And as we continue to work with them, that's the talks that we're here. Starting to hear that it might be getting added back to the base rate. Um and so that's something that we're do, we do in every state. Um, when there's a quality program, making sure that we understand how the quality program works but how that also interacts with the base rate,

All right, thank you. And then just as a follow-up, you know, kind of speaking to, you know, you had strong skill mix in the quarter and just, you know, thinking about, as you guys kind of continue to add density in your Market, uh, and kind of just the Dynamics of managed care, reimbursement, and the typical discount versus fee for service, um, or kind of any of your clusters or at the cluster level, kind of participating, or having engagements with payers around participating, in, like value based care oriented reimbursement, models to maybe close that Gap. Further,

Raj Kumar: um, of course I mean that is a continued discussion that we've had from the last

You start to look at Value, based care and value based modeling. Um we're all in for it with the Managed Care participants in that particular area. We we love to do things. Our value adds both for us,

Raj Kumar: And for the MCA so that we can make sure that we're getting great, quality of care to, to our residents. Um, I think when we talk about the volume that there is value based programs have encompassed over there, they're relatively small. Um, but we're, we're definitely their part in the MCA Partners in every market and

Raj Kumar: I kind of come up with unique programs based on what's happening in that local market. That's going to benefit what the MCO is trying to overcome in that market.

Raj Kumar: Awesome. Thank you for the color.

Your next question comes from the line of AJ rice with UBS. Your line is open.

Forming before you acquired them.

But it sounds like uh those uh the deals in general, are outperforming. I'm just trying to understand. Are you realizing improvements quicker, than maybe? Historically, was the case or are

Raj Kumar: Um um are you uh did you just take a more conservative approach in the way you uh assume those would impact your financials?

Uh, it's a great question. I think there's a couple of things at play. Um, I think our assumptions haven't really changed. We're our our projections haven't changed. We always try and break down the Fairway of what we think is possible. If we you know, make aggressive uh changes as needed. And um what we have seen is there's there's a slightly better environment that we're seeing some of that is where we've grown recently around um agency labor. You know a year or 2 back we were seeing some of our Acquisitions you know where you were 50% 60% of their labor was agency and when you're having to, you know, completely rebuild a, you know, a healthcare operation from the line staff up that takes a little bit more time. So that's been an environmental thing. That's slightly better. I'd say the biggest thing though is we've, uh, as we have higher density and we have stronger clusters working around these, um, these Acquisitions. We're just able to move things quicker. We're able to, you know, backfill to staff positions from, you know, cluster partner building.

Moving. We've got a better program of developing Talent. So you know, 1 faculty talent that can you know, go be leaders in another facility and as you have higher density in your acquisition you're able to do that without asking those employees to move across the, you know, the country. So there's a lot of things that play I would say. Um, the final thing is just, you know, we learn every acquisition, we do. Well they're done locally. We have a great uh method for sharing and forum for sharing that. So we're constantly learning from our mistakes and from what we do, right? And the more we do that, you'd expect we get better and better over time and I think we're seeing a bit of that.

Okay, great. Let me just ask you on. Um, I know you were asked earlier about the 1, big, beautiful, bill. I wondered about how it's, you know, translating into Market activity, particularly 2 areas. Have you seen it impact the pipeline in any way or they're more or less sellers because of the chatter around that or people's expectations around pricing, uh, adjusted in any way. And then also in your discussion with States on rate updates, uh, are you seeing any? Um,

Impact. Uh, at this point I think it's probably early but I figured I'd ask, is it having any impact on, you know, composite rate expectations for the, uh, this year or next year.

Speaker Change: Yeah, so I'll take the pipeline question so, you know, I I guess the short answer is. I you know, I guess we've seen we've seen. But but, you know, the, the thing about it is that, you know, last year it was the minimum Staffing bill, right? Like there's, there's the the constant in our industry is there's always something out there that is, you know, you know, basically regulatory change whether it's, you know, rates or, you know, some kind of Staffing requirement or whatever it is. And I, I think, um, so, you know, I I can't really say I've seen more deals come but just it's been really steady. Maybe the reasons of why, or kind of always shifting, but it's just a lot, a lot more deals than we could ever do in a, in a, you know, um, or coming our way until that allows us to be really selective. And on the right front. I mean, we're always active and having these discussions at a state level, like Gary mentioned. And, and we mentioned our prepared remarks. I mean, we don't see anyone shifting that way yet, but it's just part of who we are, is to be

Actively involved in the discussion at the local level. In each state talking about what may or may not be happening with that state rate. And then to, you know, if we have a a state where a rate does go down, that doesn't necessarily mean that it's going to go to the bottom line for us and and we've done that time and time again where our operational performance, our operational reaction to a rate decrease. There's so many different ways that we can pivot through that and so even when we do have an have had to identify where the rate is going to go down, we are able to, um,

Speaker Change: Work through it, by changing our operational. Um, performance

Speaker Change: Okay, thanks a lot.

Speaker Change: Thank you.

Ladies and gentlemen, that concludes today's call thank you for joining. You may know disconnect.